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Phelps Brand, Endorsements Take a Hit

Kellogg Walks Away from Olympian, Subway Puts Him on Back Burner

By Published on . 4

NEW YORK (AdAge.com) -- That was one expensive bong hit. The pot-smoking photo that rocketed around the world has cost superstar Michael Phelps a deal with squeaky-clean Kellogg and earned him a three-month suspension from USA Swimming and and is likely to delay an about-to-break ad campaign for Subway.

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When endorsers go to pot: Bad news is bad news, but other endorsers' alleged bad behavior puts perspective on Phelps' hits from the bong.
But what could arguably cause the most damage to the most decorated Olympian ever, well on his way to Tiger Woods status, was a statement he made to the Baltimore Sun that he may not compete in the 2012 Games -- an understanding that many of his endorsement deals are based on.

After the damaging photos surfaced, Mr. Phelps issued an apology on Feb. 1 for the "inappropriate behavior," underscoring his youth. Several sponsors -- Speedo, Omega, Visa and Pure Sports -- leapt quickly to his defense. But there was a palpable silence coming from Kellogg and Subway.

Five days later, Kellogg announced it would not renew Mr. Phelps' contract, describing the swimmer's recent behavior as being "inconsistent with the company's image." Somewhat belatedly, Subway said on Feb. 5 it would stand by its man, but executives familiar with the matter said it is likely to backburner its first TV campaign with Mr. Phelps, initially set to break early this year. "Like most Americans, and like Michael Phelps himself, we were disappointed in his behavior," Subway said in a statement. "Also like most Americans, we accept his apology. Moving forward, he remains in our plans."

No longer buzzin'
Initially, it looked as if Subway might distance itself from Mr. Phelps, as his image disappeared last week from its SubwayFreshBuzz website that highlights "fresh celebrities." But the spokeswoman for the Subway Franchisee Advertising Fund Trust said "to her knowledge" the site had not been changed.

"I am heartened by the strong show of support from my many sponsors," Mr. Phelps said in a statement to Ad Age. "My focus now is on the pool and on practice."

Kellogg's move bounced fast throughout the blogosphere, with many rising to Mr. Phelps' defense, even at AdAge.com. One commenter wrote: "Would everyone who has ever smoked a joint or hit the bong please refrain from Kellogg's products? Isn't Kellogg's trying to imply that their product aided Michael in winning all those Gold medals? Such hypocrisy."

But Kevin Adler, president of Chicago-based Engage Marketing, said, "From a marketing perspective, athletes are brands. And if you are going to attempt to create and monetize a brand image, when you are publicly seen doing something directly contrary to that a brand image -- in simple black-and-white terms -- that has a direct impact in on your ability to monetize that brand image. "

Ken Ungar, president of Ungar Strategies, said Kellogg's move comes because it makes products for kids. "They make cereal that targets the youth market, ages 6 to 12, so they would be very concerned about this kind of behavior."

Grandstanding
That said, however, Kellogg's statement may have been more grandstanding than substance. The company pointed out that its contract with Mr. Phelps was set to expire at the end of February, and an executive familiar with the matter said the cereal company did not have an option to renew it.

A brand defaced: In marketing, 'Athletes are brands,' says one expert.
A brand defaced: In marketing, 'Athletes are brands,' says one expert. Credit: Rob Carr
The ultimate impact of the scandal on Mr. Phelps' earning potential as an endorser will come at the end of 2009, long after the smoke has cleared, when his deal with Speedo expires. Projections of Mr. Phelps becoming a $100 million endorser all assumed something of a bidding war for Mr. Phelps' services between Speedo and Nike, which at the last Olympics let its own swimmer-endorsers wear Speedo suits in an apparent nod to their superiority. Nike is thought to view Mr. Phelps as a Tiger Woods-like presence in swimming, an athlete bigger than his sport who can single-handedly deliver a major presence in a category in which the marketer previously lacked one. In golf, signing Mr. Woods turned Nike from an afterthought into a major force in apparel. The most decorated Olympian in history would seemingly offer a similar opportunity in the pool but, of course, Mr. Woods has never been linked to drugs.

Though one sports-marketing vet said Mr. Woods "won't be a $100 million man now," Mr. Adler pointed out that the public has a short memory when athletes are performing well. Kobe Bryant's jersey is one of the NBA's bestsellers: "A few years ago, I was telling everyone he was through," referring to rape accusations against the basketball player that were eventually dismissed.

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Contributing: Jeremy Mullman

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